Grayscale’s Proposal to SEC: Exploring the Path Forward for Bitcoin ETF Transformation

Grayscale has reached out to the Securities and Exchange Commission (SEC) with a compelling argument in favor of converting its flagship Bitcoin fund into a spot exchange-traded fund (ETF). In a letter dated September 5, the legal representatives of Grayscale made a formal request to the SEC, proposing a meeting to discuss the next steps following a recent legal setback for the Grayscale Bitcoin Trust (GBTC).

In a decisive move, the United States Appeals Court had ruled against the SEC’s denial of Grayscale’s application to transform GBTC into a spot Bitcoin ETF on August 29. This ruling marked a significant turning point in Grayscale’s pursuit of its ETF conversion.

Grayscale pointed out that, with the Court of Appeals’ decision, there is now no viable legal rationale to distinguish between a Bitcoin futures Exchange-Traded Product (ETP) and a spot Bitcoin ETP under the SEC’s previously adopted legal analysis. Grayscale firmly believes that the SEC should acknowledge that there are “no grounds” for treating GBTC differently from Bitcoin futures ETFs, which have previously received the Commission’s approval.

The letter emphasized that if there were any other valid reasons for rejecting the conversion, they would have already come to light. Grayscale argued that it’s confident any such reason would have surfaced in the fifteen Commission orders that rejected spot Bitcoin filings, even after Bitcoin futures ETPs had started trading.

Furthermore, Grayscale highlighted the protracted timeline of its fund conversion application, which has been pending for nearly three times longer than the SEC’s stipulated time frame. Grayscale expressed its firm belief that the nearly one million investors in the Trust deserve a level playing field as swiftly as possible.

In the wake of the August 29 court ruling, the GBTC discount, which indicates the extent to which an ETF is trading above or below its net asset value, fell to 19.9%. This was a significant improvement from the nearly negative 50% discount experienced during the bear cycle bottom following the FTX collapse in December 2022.

In conclusion, Grayscale’s latest move represents a strong push towards securing the conversion of GBTC into a spot Bitcoin ETF, backed by solid legal reasoning and recent court support.

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